Real estate economics entails the use of economic analysis techniques to determine the trends in real estate markets. The underlying objective of real estate economics is to offer a description, explanation and a prediction of the trends of demand and supply in real estate markers. This denotes the significance of analyzing the impacts of structural and business factors on the trends of real estate market. The most significant factors that influence demand in real estate markets are demographic factors. However, there are other factors such as levels of income, credit availability, and preferences of the consumers, price of housing substitutes, and price of the housing (Chiu, 2007). Various factors influence the demographic trends, which in turn shape the real estate market trends. This paper attempts to investigate the impacts of Olympics on the trends of real estate market in Beijing.
Overview of Beijing Real estate market before the 2008 Olympics
Prior to understanding the effects of Olympics on real estate on Beijing, it is important to have an insight on the overview of demographic factors of Beijing and nature of real estate before the onset of Olympics during 2008. China’s economic development makes it a hub for most of real estate investors. This implies that Chinese affluence plays a significant role in determining the real estate market trends. Reports indicate that China accounts for approximately 12 percent of luxury buys due to the recent economic development. Wealth accumulation in Beijing is playing a significant role in influencing the patterns of demand and supply for real estate property in the city. The multinational business center associated with Beijing is another significant determinant of the real estate market trends in the city. The final determinant of Beijing real estate market trends is the increasing number of Chinese who are constantly migrating from the rural parts of China to the city, thereby having an effect on the demographic variables that affect the demand for housing. An integration of the above factors plays a significant role in establishing the real estate trends prior to the onset of Olympics hosted in Beijing. Majority of real estate property agents based in Beijing contest to the fact that most of the buyers in Beijing are the indigenous Chinese from other metropolitan areas of China. It is also notable that Beijing has gained domestic popularity compared to other metropolitan cities such as Shanghai (Hong Kong Housing Authority, 2003). The following section analyses the impacts of Olympics on the real estate trends in Beijing.
The impacts of Olympics on the real estate market trends in Beijing
Olympics are an international social event, meaning that it drew people from various countries to Beijing. As a result, it had an influence on the demand and supply of housing in Beijing during the on-going Olympics and after the end of the games. The bid for Beijing to host the 2008 Olympics meant that there was a building spree in the city due to the anticipated increase in demand for housing during Olympics. The 2008 Olympics had impacts on the several determinants of demand and supply of housing in Beijing. This implies that the adjustments in real estate market demand and supply saw a tremendous increase just before and after the mega event (Kumar & Lim, Hong Kong).
The 2008 Olympics served to transform Beijing into a post urban center. Mega events usually have an overall effect on almost every aspect of urbanization and real estate market is not an exception in this case. Coupled with economic factors, the real estate market in Beijing had to succumb to the aftermath of the Olympics 2008 games. One of the most dominant impacts of the 2008 Olympics to Beijing is that it resulted to a housing boom, which resulted to most of the empty ground space being converted to buildings in order to meet the high housing needs associated with the mega event. The housing boom resulted to a more mature real estate market in Beijing compared to the time before China won the bid to host the 2008 Olympics in Beijing. The housing boom had diverse effects on the various variables that affect real estate market. One of the most notable effects of the housing boom witnessed prior to the Olympics is that it increased the supply of housing. This implies that Real estate developers took much interest in the development of real estate facilities to offer accommodation to the large number of participants in the Olympics and the large number of tourists and locals who came to watch the Olympics. The housing boom also resulted to real estate swaps, with most of the non-sporting facilities in the city being transformed to commercial and tourism developments. The supply and demand of housing facilities in Beijing as a result of the housing boom before the Olympics served to increase the housing prices and the prices of supply factors for real estate developers. In addition, a more notable trend of the housing boom is the increasing development of high-end luxury apartments that rented for higher prices compared to the period before the 2008 Olympics (Li, 2008). The housing boom can be attributed to increased construction of Beijing in preparation for hosting the Olympics and its participants adequately. The high expectations had resulted to a housing boom prior to the onset of the mega event, which was supposed to increase urbanization, economic and demographic factors. The anticipated adjustments of these factors meant that real estate developers and investors had to make the most out of the short duration of Beijing hosting the Olympics. It can be inferred that the housing boom associated with the 2008 Olympics had effects on the key participants in the real estate market players such as the users, owners, renters, developers, facilitators and renovators. The demand side effects significantly affected the renters and owners in terms of increased prices of housing. An effect on the supply side due to the housing boom included increased real estate financing from the facilitators, implying that developers and renovators had their turn to make the most out of the housing boom associated with the 2008 Olympics (Kumar & Lim, Hong Kong).
Another notable impact of the 2008 Olympics on the real estate market on Beijing is that it resulted to high housing prices, which turned unaffordable for the local Beijing population. Just like any other mega event, every business enterprise had the hope of making high profits from the tourism associated with the mega event, because it attracts people from all over the world. The real estate market is not an exception, and various key players had the hope of making high revenue from the Olympics. The only strategy deployed to ensure high revenue was to raise the housing prices due as an adjustment strategy to the increasing housing demand in Beijing. The high demand was because of the adjustments of demographic factors in Beijing, such as increased population during the Olympics. The relationship between the population size and real estate market is based on the principle that more the number of people in the economy, the higher the demand for real estate facilities (Li, 2008). The outcome of this relationship with respect to the 2008 Olympics is that the prices of housing increased in Beijing. In addition, the demographic composition of Beijing during the Olympics consisted of mainly foreigners, who were in dire need of accommodation during the 2008 mega sporting event in Beijing. In order to meet the high housing demand, housing supply had to succumb to adjustments by experiencing an increase. The cost and quantity of real estate supply factors such as land, input materials such as building materials increased as a response adjustment to the increasing demand for housing during the 2008 Olympics. This implies that credit availability was high in Beijing during the 2008 Olympics. Real estate market costs such as acquisition, administrative, material and labor costs rose as a result of increased demand due to the Olympics. Most of the real estate property consultancy agencies in Beijing contest to that fact the housing boom and its effects can be attributed to the run up to the hosting of the Olympics, which saw massive construction of luxury apartments and villas. The Olympics served to increase Beijing popularity in the international arena, making Beijing a destination for foreign investors in the real estate sector (Wang, 2008).
Even after during the post Olympics period, the housing costs were still high in Beijing even after adjustments. Beijing Olympic Economy Research Association reports that there was balanced construction during the city’s preparation for hosting the 2008 Olympics. From 2007 and the first half of 2008, Beijing real estate market experienced adjustments that extended beyond the Olympics. This means that a decline in the housing prices is long overdue and the increasing demand for housing in the city will continue to skyrocket the prices of real estate facilities in Beijing. In addition, the Beijing Times reports that the city’s real estate sector is facing massive competition in an era whereby it is characterized by high profit margins during the short period that city hosted the Olympics (Li, 2008). Despite the decreasing price declines on the overall China real estate property estate, Beijing has continued to witness house price inclines irrespective of the price controls and the adjustments by the government. This state of affairs can be inferred as one of the post Olympics effects to the real estate market in Beijing. Banking institutions in Beijing are raising concerns over the increasing housing slump in Beijing, arguing that control and adjustment strategies in the real estate market in Beijing should put more emphasis on housing prices inflation (Liauw, 2008). This has resulted to increased sales of real estate property in the city, putting a risk strain on the banking institutions in Beijing in terms of the housing leans issued to individuals. Many banking institutions state that the dynamics of real estate market in the city are defying the adjustments variables due to the impact of the Olympics on the city. In addition, the present state of affairs in the real estate industry of Beijing is not susceptible to experience a decline in the near future due to the new achieved status of the city. Urban transformations witnessed in Beijing have had a significant impact on the real estate trends in Beijing. The changes in economic activities in Beijing city due to the Olympics had a significant impact on the real estate trends. This is due to increased urbanization and the international recognition that Beijing got as a result of hosting the Olympics during 2008. The Olympics restructured Beijing economy to incorporate foreigners and multinational corporations due to the need to address the housing needs of these new business entities in the city. In addition, the newly achieved status of Beijing city after the Olympics meant that the city was bound to attract real estate property investors. Savills Property Services manager, based in Beijing argues that Beijing is one of the hottest destinations for real estate property investors currently and notes that Residential property rates has witnessed appreciation before and after the city hosted the Olympics (Kumar & Lim, Hong Kong). With the post Olympic status, the Chinese government provided room for foreign investors to acquire real estate property in the country. Foreign buying has had a great impact on the real estate industry in Beijing, as characterized by the high-end real estate projects in the city. A most significant trend in Beijing s the newly acquired status of world class business center, this led to the rise of multinationals establishing their bases in the city. This adds to the list of well paying residents of the city, therefore increasing the already existing demand for housing in the city. A notable trend is their perception to the city, characterized with their preference in buying rather than renting due to the increased living standards in the city as result of the 2008 Olympics that saw massive development of the city’s economic sectors and service delivery. It can further be noted that the Olympics was an opportunity for China to make the living conditions for the city good, therefore attracting a large pool of real estate property investors on the supply side and renters and buyers on the demand side of the market (Kumar & Lim, Hong Kong). The underlying challenge is if Beijing can continue meeting the supply from the real estate market in the nearby future. Real estate agencies report that currently, there is approximately one billion square feet undergoing construction in Beijing, and the concern is whether the city will meet the increasing pressure from the supply side of the market, especially after the Olympics. This means that the local government has the responsibility of controlling the increased housing flooding the real estate market in Beijing. The housing enthusiasm by real estate investors was because of the city being given an opportunity to host the 2008 Olympics. Even after the Olympics, the real estate market in Beijing is experiencing a tremendous expansion (Li, 2008). China national Real Estate Development Group reports that the present housing demands stands at 25 square meters per an urban resident; this trend is bound to increase the housing demand unless the demand levels to 35 square meters for a single urban resident. With the increased construction being witnessed in Beijing, there is a possibility that the housing flooding is going to continue in Beijing’s real estate market (Kumar & Lim, Hong Kong).
The Olympics also had negative effects on the real estate market, especially for consumers of real estate property, which in this case are the local city residents. The increased housing prices had resulted to unaffordable housing to the residents who cannot stand the ever-increasing housing rates in the city. In addition, the massive constructions associated with hosting the Olympics resulted to massive forceful evictions of city residents in bid to prepare the city for Olympics. Coupled with allowed privatization of the real estate sector in China, city residents succumbed to high housing rates due to the need by real estate investors to maximize their revenue from the mega sporting event of 2008. The increasing property market in Beijing is responsible for transforming the city from previous agricultural lands to a more urbanized set up characterized by high cost of living. The Beijing Olympics served to increase the living standards of the city and this significantly affected the consumers of real estate market properties, especially the renters of housing facilities. It is evident that the Olympics transformed the real estate property development in Beijing with most constructions witnessed in the present times consisting of luxury villas, hotels and castles to host corporate events in the city. Such developments imply that only ultra-wealthy buyers will have the opportunity to own real estate properties in Beijing. In a short, before and after the Olympics, Beijing real estate market has witnessed a revolution as evident by the high-end property developments whereby leasing costs range between $ 20 000 and $ 30 000 on a monthly basis (Li, 2008). This comes to the advantage of the real estate developers, while the local city residents are forced to seek alternative housing facilities elsewhere because of the increased cost of living and housing. The recent transformations in the real estate market in Beijing imply that government agencies had the task of regulating the increasing constructions of villas in the city. Increase in housing prices saw luxury apartments being leased between $ 1900 and $ 2500 per square meter on a monthly basis. The purchase price of such apartments goes for about $ 450 000, while rent costs goes for about $ 30 000 per month. This depicts a 15 per cent appreciation on an annual basis, courtesy of the 2008 Olympics (Li, 2008).
It is widely evident that the 2008 Olympics had significant effects on the determinants of the supply and demand variables of the real estate market in Beijing. The most notable effect is the housing boom and increased housing prices in the city due to the need by the property owners to maximize their revenue from the 2008 Olympics. Another notable effect is the high housing prices witnessed during the adjustment period, through which the prices are supposed to fall down after the Olympics. The rising concern is whether the city will meet the increasing housing flooding being witnessed by intensive construction even after the end of the Olympics. With a new modernization policy adopted by the local government, it is evident that the real estate market in Beijing is bound to witness an increasing development of high-end real estate property in order to sustain the newly achieved city status as because of the Olympics (Kumar & Lim, Hong Kong).
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